Alibaba sales miss in sign spending has yet to pay off
August 03 2021 09:23 PM
A person walks past a sign at the Alibaba Group Holding headquarters in Hangzhou, China. Alibaba rep
A person walks past a sign at the Alibaba Group Holding headquarters in Hangzhou, China. Alibaba reported revenue that missed estimates, suggesting plans to hike spending in pursuit of growth have yet to gain traction.

Bloomberg / Hong Kong

Alibaba Group Holding Ltd reported revenue that missed estimates, suggesting plans to hike spending in pursuit of growth have yet to gain traction.
Revenue for the three months ended June climbed from a year earlier to 205.7bn yuan ($31.8bn), compared with the 209.4bn yuan average of analyst estimates. Net income was 45.1bn yuan, rebounding from a loss in the previous quarter following the firm’s record antitrust penalty. The company announced it was boosting its share buyback program by 50% to $15bn. Alibaba shares were up slightly in pre-market trading.
Alibaba, among the first of China’s Internet giants to feel the heat from Beijing, has been closely watched for clues to the real-world impact of the upheaval that’s ensued since regulators went after industries from online commerce to ride-hailing and edtech. Months after swallowing a $2.8bnn fine for violations such as forced exclusivity with merchants, Jack Ma’s flagship e-commerce firm is plowing money into areas like its bargains platform and community commerce to offset slowing growth, at a time when rivals like Pinduoduo Inc. and Inc are eroding its dominance in China’s e-commerce sales.
Alibaba is “undergoing an investment phase,” Daiwa analysts led by John Choi wrote in a recent research report. “Investment in Taobao Deals and Community Marketplaces will likely drag down core-commerce EBITA. These are the key investment areas for Alibaba to add 100mn new consumers in China by FY22.”
Resurgent pandemic risks in China, which was the first major economy to recover last year, have clouded the outlook for companies like Alibaba. The country is currently facing its broadest coronavirus outbreak since the pathogen first emerged in late 2019. But even before the recent spike in infections, the rebound in consumer spending has been uneven. During the so-called June 18 shopping festival, total parcel delivery volume rose 24% across the country, half the year-earlier pace, according to data from the State Post Bureau.
Along with slowing online retail sales, “both Douyin and Kuaishou actively joined the competition,” Blue Lotus Capital Advisor analyst Shawn Yang wrote in a July note. “Alibaba’s strategy for 6.18 of this year is more on user retention rather than GMV growth.”
Alibaba in May forecast revenue growth of at least 30% for the 12 months ending in March, a deceleration from the 41% seen a year earlier. That prediction suggests that Alibaba’s share of China’s e-commerce sales will fall below 50% for the first time ever in 2021, industry researcher eMarketer said in a July 30 report. Annual active consumers across its China retail marketplaces grew a slower-than-expected pace to 828mn in the June quarter, driving a 35% increase in its commerce business. Across all business, the firm, which is targeting 1bn users in its home market by the end of 2021, had 912mn users in China. Its bread-and-butter customer management revenue climbed just 14%, the weakest in at least three quarters, after Alibaba started combining commissions revenue with the figure.
Cloud revenue climbed 29%, slowing for a second consecutive quarter after a major customer withdrew. Bloomberg News has previously reported that the client is TikTok-owner ByteDance Ltd.
Executives last quarter had pledged to channel all incremental profit into investment to refocus on its business, as Beijing’s campaign to rein in its tech companies continues unabated. Alibaba has joined in a government-led bailout of Co, boosting its stake in the troubled electronics seller.
The corporation’s cloud division also pledged $1bn to support startups in Asia, while opening new data centres and innovation centres in Southeast Asia. In July, it also announced it will become an anchor investor in a new HK$2bn ($258mn) fund for startups located in the Guangdong-Hong Kong-Macau region.
“The trajectories of Alibaba and China are inextricably linked,” Alibaba Chairman Daniel Zhang said in his annual letter to shareholders last month. “Alibaba owes its growth and development over the past 20 years to society and to the era that we belong.”
Alibaba last month combined its food delivery app, Koubei local commerce platform as well as mapping and online travel business into a new lifestyle services division, a move that could help it better challenge Meituan’s dominance in those sectors.
As part of the changes, the company also merged Tmall’s online grocery service with Alibaba’s cross-border commerce business.
Alibaba shares touched a 16-month low last month as the government’s crackdown spread to the online education sector and more regulators including the Internet-industry overseer stepped up scrutiny over the sector.

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